22/03/2021·3 mins to read
New Incorporated Societies Bill - light at the end of a lengthy law reform tunnel
On 17 March 2021 the Incorporated Societies Bill was introduced to Parliament - a mere 8 years after the New Zealand Law Commission strongly recommended a new act for incorporated societies, and 113 years after the current legislation was first enacted.
The proposed new legislation will repeal and replace the out-of-date Incorporated Societies Act 1908. It will comprehensively restate and modernise the framework of basic legal, governance, and accountability obligations for incorporated societies and those who run them.
Once finalised and enacted, the new legislation will impact on all of New Zealand’s 23,000+ incorporated societies and their boards/committees, officers and members, and existing societies will need to make sure they have compliant constitutions in order to transition to the new regime.
If you or your organisation will be affected, you need to understand the prospective impact of the new act, if appropriate take the opportunity to have your say on the draft legislation, and prepare for compliance with the new regime.
What are the key changes under the new legislation?
Under the new legislation the essence of an incorporated society will remain the same - a private/non-governmental, self-governing, membership-based corporate structure to facilitate the pursuit of any lawful purpose, other than financial gain.
However, the legislation will comprehensively restate and modernise the framework of basic legal, governance, and accountability obligations for incorporated societies and those who run them.
Key changes to the existing framework include the following:
- Maintenance of minimum membership: All societies will need to start with and also maintain a membership of at least 10 members (with corporates continuing to count as 3 members for this purpose).
- Clarification of corporate capacity: New capacity provisions will make it clear that, subject to its constitution, the starting point is that a society has full capacity and powers to pursue its purpose(s).
- No financial gain: Provisions relating to societies not operating for financial gain are fleshed out and tightened under the new legislation, to affirm that a society must not be carried on for the financial gain of its members and to clarify circumstances in which this requirement will or will not be breached. This includes general prohibition of any distribution of surplus assets to members on winding up, with any such surplus to be distributed to another not-for-profit entity or entities.
- Constitutions required and must be compliant: The new legislation will continue to require all societies to have a constitution, rather than setting out default constitutional provisions, and societies’ constitutions will need to comply with much more prescriptive requirements in relation to their content. The legislation also expressly acknowledges that a constitution may provide for a society to express its tikanga or culture.
Existing societies shifting to the new regime must ensure that their constitutions are compliant before the end of the transition period for re-registration.
- Regulation of boards/committees and officers: Every society will need to have a governing body (board/committee) of 3 or more individuals who are members. The legislation will also prescribe disqualification criteria for board/committee members and other officers, and will set out the core duties that they owe to their society, namely:
- to act in good faith and in the best interests of the society
- to exercise their powers for a proper purpose
- to comply with the legislation and the society’s constitution
- to exercise reasonable care and diligence
- not to create substantial risk of serious loss to the society’s creditors
- not to agree to the society incurring obligations that it cannot perform
Prescriptive conflict of interest rules are also set out in the legislation, along with restrictions on indemnification and insurance for the benefit of board/committee members and others involved in running a society.
- Mandatory contact person(s): Every society will need to have at least 1 New Zealand resident contact person (and may have up to 3 contact persons).
- Membership matters: The legislation expressly provides that a person must consent to membership. It includes new provisions relating to members’ entitlement to, and requests for, society information, and more detailed provisions regarding annual and other general meetings of members and (if a constitution permits this) member resolutions in lieu of such meetings.
- Financial reporting and assurance: For societies to which updated financial reporting and assurance requirements do not already apply (eg under the Charities Act 2005 or Financial Markets Conduct Act 2013), the legislation prescribes new, tiered (size-based) requirements for financial statements that must be prepared and filed by all societies. Large societies will need to have their accounts audited.
- Annual returns and register updates: The register will include more detailed society information and societies will need to file annual returns and notify changes (including officer/contact person changes) to keep their registry information up-to-date.
- Enforcement: The new legislation will include a range of provisions dealing with Court orders relating to the enforcement of a society’s constitution and bylaws, the enforcement of officers’ duties, oppressive/discriminatory/prejudicial operation of a society, recovery of impermissible financial gain from members, and various offences.
- Role of the Registrar: The functions and powers of the Registrar of Incorporated Societies are restated and the new provisions include, amongst other things, wider powers to inspect, copy and take possession of documents and standing to initiate enforcement proceedings if the Registrar considers it is in the public interest to do so.
- Amalgamation of societies: Following the lead of the Companies Act 1993, the legislation will include, in addition to updated provisions relating to removal/restoration, creditor compromises and liquidation, new provisions enabling the amalgamation of 2 or more societies as 1 society. This is a welcome change to facilitate the reorganisation of societies.
- Charitable societies: The Charitable Trusts Act 1957 will be amended to remove the option of incorporating charitable societies as boards under that Act. However, societies that are already incorporated under that Act will not need to transition to the new regime, unless they choose to do so.
The above is a snapshot of just some of the many proposed changes in the legislation, and as always the devil is in the detail.
How will existing societies transition to the new legislation?
The new legislation will allow time for existing incorporated societies to comply with, and then reregister under, the new regime. The transition period is particularly important to enable existing societies to review and amend their constitutions to make sure they are compliant, and to ensure that their officers are qualified to be appointed, under the new legislation. Some societies may also decide to restructure/reorganise, or to wind up.
The proposed final transition date is the later of 1 December 2025 or the date that is 2½ years after the discontinuation of new applications for incorporation under the 1908 Act (the timing of which will depend upon when the new legislation is enacted and relevant transitional provisions come into force). The intent is to allow a transition period of at least 4 years for existing societies to comply and reregister.
An existing society will be able to reregister under the new regime before the final transition date. If a society is not reregistered, and has not applied to reregister, by that date, the incorporated society will cease to exist and a restoration application would be required to reinstate the entity.
Get in touch
Contact one of our experts (pictured below) for advice regarding the impact of the new legislation, whether or not a submission may be warranted, and how best to ensure that your society and its board/committee, officers and members will be ready to comply with new regime.